Carlton company had assetsof $280,000 & liabilities of $120,000 at the beginning of the year and assets of $400,000 & liabilities of $140,000 at the end of the year. During the year, the owner invested an additional $40,000 in the business, and the company made withdrawals of $48,000. What amount of net income did the company earn during the year?
To determine the net income of Carlton Company, we need to calculate the change in owner's equity during the year. The formula for owner's equity is:
Owner's equity = Assets - Liabilities
At the beginning of the year:
Owner's equity = $280,000 - $120,000 = $160,000
At the end of the year:
Owner's equity = $400,000 - $140,000 = $260,000
To find the change in owner's equity, we subtract the beginning owner's equity from the ending owner's equity:
Change in owner's equity = $260,000 - $160,000 = $100,000
The change in owner's equity includes both net income and owner investments minus owner withdrawals. Let's calculate the amount of the owner's investments and withdrawals:
Owner's investments = $40,000
Owner's withdrawals = $48,000
So, we have:
Net income + Owner's investments - Owner's withdrawals = Change in owner's equity
Net income + $40,000 - $48,000 = $100,000
Rearranging the equation, we can solve for net income:
Net income = Change in owner's equity - Owner's investments + Owner's withdrawals
Net income = $100,000 - $40,000 + $48,000 = $108,000
Therefore, the company earned a net income of $108,000 during the year.
To calculate the net income of the company, we need to use the formula:
Net Income = (Ending Assets + Additional Investments) - (Beginning Assets + Withdrawals)
Let's break down the information given in the question:
Beginning Assets = $280,000
Liabilities = $120,000
Ending Assets = $400,000
Liabilities = $140,000
Additional Investments = $40,000
Withdrawals = $48,000
Using these values, let's calculate the net income:
Net Income = ($400,000 + $40,000) - ($280,000 + $48,000)
Net Income = $440,000 - $328,000
Net Income = $112,000
Therefore, the company earned a net income of $112,000 during the year.